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March 21, 1984

PETERS FABRICS, INC., Plaintiff, against JANTZEN, INC., Defendant; JANTZEN, INC., Plaintiff, against PETERS FABRICS, INC., Defendant.

The opinion of the court was delivered by: SPRIZZO



 In one of thes two actions, 82 Civ. 5169, Peters Fabrics, Inc. ("Peters") sought to confirm an arbitration award in the New York Supreme Court, New York County, under Article 75 of the New York Civil Practice Law and Rules. The action was removed to this Court by Jantzen, Inc. ("Jantzen") pursuant to 28 U.S.C. § 1441(a). At the same time, Jantzen instituted a related action against Peters, 82 Civ. 5168, seeking to recover money damages and to vacate the arbitration award.

 Jantzen, a nevada corporation with its principal place of business in Oregon, is a manufacturer of apparel. Peters, a Massachusetts corporation with a place of business in New York, is a textile importer. Federal jurisdiction is predicated on diversity of citizenship and a jurisdictional amount in excess of $10,000. 28 U.S.C. § 1332(a)(1).


 On March 5, 1980, the parties entered into an oral agreement by telephone whereby Peters agreed to sell, and Jantzen to buy, over 20,000 yards of gray and navy flannel fabric for use in Jantzen's fall line of apparel. Peters shipped the fabric on March 10. Jantzen sent Peters two purchase orders, one dated March 5, 1980 and one dated March 7, 1980. Affidavit of Marcia B. Paul, Esq. ("Paul Affidavit"), Exh. A. Peters, in turn, sent Jantzen a sales confirmation dated March 7, 1980. *fn1" Affidavit of Harvey F. Friedman, Esq. ("Friedman Affidavit"), Exh. A; Paul Affidavit, Exh. B.

 The sales confirmation and the purchase orders contained dissimilar provisions and crossed in the mail. *fn2" The arbitration clause in Jantzen's purchase orders provided for arbitration in accordance with the rules of the American Arbitration Association ("AAA"), while the arbitration clause in Peters' sales confirmation called for arbitration in New York City before the General Arbitration Council of the Textile Industry ("GAC"). *fn3" In addition, Jantzen's purchase orders included a typewritten addition which specified that "[t]his fabric is to be used in a coordinate program. All colors must have a critical color match both within each dye lot and from lot to lot." *fn4" Paul Affidavit, Exh. A.

 The difficulties between the parties began April 18, 1980 when Jantzen, after testing the fabric for color match, determined that 2,380 yards of gray fabric was off color. Jantzen reported the results of its test to Peters, and informed Peters that it was rejecting the fabric as nonconforming goods. *fn5" Peters then retained its own fabric tester who determined that the fabric was "commercially acceptable." *fn6"

 In August 1981, over a year later, Jantzen returned the uncut fabric to Peters pursuant to a letter from Peters which authorized the return. Jantzen withheld payment on two current Peters' invoices up to the value of the goods returned, in accordance with their standard policy. Peters accepted the return of the goods, retested them, and once again determined that the material was commercially acceptable. Peters then resold the fabric.

 On November 10, 1981, Peters served Jantzen with a demand for arbitration of Peters' claim for damages which resulted from Jantzen's return of the fabric and Peters' resale at a lower price. The demand indicated that the arbitration could be conducted pursuant to the rules of either the AAA or the GAC. On November 19, 1981, counsel for Jantzen replied by letter to Peters' counsel (with a copy to the administrator of the GAC) that Jantzen had not agreed to arbitrate under any rules other than those of the AAA, and that Jantzen intended to move for a stay of the arbitration if it were to be conducted under any other rules. Friedman Affidavit, Exh. C; Paul Affidavit, Exh. E.

 There was no further communcation between the GAC and the parties until the GAC administrator sent a letter dated January 13, 1982, acknowledging receipt of Jantzen's letter and addressing several procedural issues. The letter informed Jantzen of its right, pursuant to section 6 of the GAC rules, to file an answering statement and/or counterclaim within ten days from the date of the administrator's letter. Jantzen did not do so, apparently resting on its claim that the GAC lacked jurisdiction over the dispute because Jantzen had not agreed to arbitrate under the rules. By letter to the GAC administrator dated January 21, 1982 (with a copy to Jantzen), Peters indicated that it had chosen, as initiator of the arbitration, to proceed under GAC rules in accordance with the terms of its sales confirmation. Friedman Affidavit, Exh. D.

 On January 27, after having received no response from Jantzen, the administrator decided to go forward with the arbitration in New York City under the rules of the GAC. On January 28, Jantzen sent a mailgram requesting an extension of time in which to respond to the demand. Peters agreed to allow Jantzen one week in which to answer the demand and to review the list of arbitrators.

 Between January 28 and February 18, the parties and the GAC adminstrator exchanged correspondence. Jantzen objected to the GAC's jurisdiction and maintained that it would apply for a stay of the arbitration; Peters and the GAC administrator indicated that, absent a court order, the GAC had no power to stay the arbitration and would proceed.

 Between February and May, the administrator proceeded to assign an arbitrator and schedule the hearing. In late May, Jantzen retained New York counsel. In a letter to the GAC administrator, Jantzen's counsel requested a week's adjournment and informed him that Jantzen planned to interpose a counterclaim. Peters' counsel objected to both the counterclaim and the adjournment. The request for an adjournment was denied by the arbitrator. On June 2, Jantzen submitted its proposed counterclaim to the GAC. By letter dated June 8, 1982, the administrator informed the ...

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